Contracts for native forest carbon: perspectives from large-scale emitters

Contracts for forests   
could support planting natives    
if trees are valued.    

When it comes to offsetting greenhouse gas emissions through forestry, New Zealand could lose valuable opportunities to support native biodiversity if investors see only the forest carbon and not the trees. To enable extensive conversion to forestry to meet New Zealand’s low-emissions targets, landowners may require financial support and certainty. This could be provided through long-term deals for their forests’ carbon; that is, for New Zealand Units (NZUs) within the New Zealand Emissions Trading Scheme (NZ ETS). For buyers, long-term forest carbon deals could provide a valuable hedge for risk around emission unit prices and volumes. This is particularly valuable in the current highly uncertain policy environment where possible large increases in the NZU price would significantly increase their emissions liabilities. A fraction of the NZUs that emitting companies require could be generated in native forestry, incentivised by the range of co-benefits native species deliver. In the New Zealand context, there is merit in identifying the factors that influence a buyer’s willingness to purchase (or pay a premium for) these NZUs derived from native forestry, or for units from small land blocks or Māori-owned land. To explore this, we interviewed representatives of large emitting companies regarding the incentives, drivers, and risks they face when contracting for forest carbon. We found that participants differed in the additional value (if any) they placed on NZUs generated from native species, small land blocks or Māori-owned land, and in the involvement of intermediaries in different deals. Additionally, participants differed in approach, where some adopted a least-cost, cost-competitive approach to meet obligations, and others a “compliance with co-benefits” approach. Participants faced critical issues in determining details and structure of long-term deals, and in managing various risks faced by both parties. To increase future engagement, priorities could include the provision of standardised contracts, the aggregation of land blocks by third parties, an increase in support and reduction of barriers for landowners, and increasing policy certainty. Embracing these opportunities could yield benefits for buyers, landowners and biodiversity, and make important contributions to the just transition to a low-emissions New Zealand.

Citation

Hale, S and S Kerr. 2019. "Contracts for native forest carbon: perspectives from large-scale emitters." Motu Note #32. Motu Economic and Public Policy Research. Wellington, New Zealand.